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Friday, September 29, 2006

Here is a beautiful presentation by Bennett Mc Dowell of Traders Coach.com

Hope you find it useful.

Implementing Money Management & Trading Psychology

NOW RECORDED & AVAILABLE FOR VIEWING!

Join Bennett McDowell, whose development of the Applied Reality Trading® proprietary system has received ringing endorsements from traders all over the world. Throughout this exciting session, you'll learn The psychology behind implementing risk control · Learning to blend your psychology with market psychology · Keeping track of your performance through accurate record keeping · Keeping great records to increase performance and avoid denial · Developing the "Trader's Mindset". This webinar is being sponsored by eSignal, provider of quality financial market data.

Prudent money management was a skill Hull first honed on the casino floor.

“No matter what, you never bet more than one fiftieth of your bankroll, and if you lose, say, half your money, you reduce your bets by half,” he says. “In the securities market, when I had a very large position and knew that we had our maximum amount of risk, I’d still be tempted to make advantageous trades that would come up. But then I’d envision chips on the table and recognize that I already had my bets on.”

Claude was the nephew of Thomas Edison, the inventor.He was an American electrical engineer and mathematician, has been called "the father of information theory", and was the founder of practical digital circuit design theory.

His contributions to science are well known.What is not well known is that he made a fortune in stock market and gambling.

He met his wife Betty when she was a numerical analyst at Bell Labs.

Shannon and his wife Betty used to go on weekends to Las Vegas with M.I.T. mathematician Ed Thorp and made very successful forays in roulette and blackjack using game theory type methods co-developed with fellow Bell Labs associate, physicist John L. Kelly . based on principles of information theory and RISK CONTROL.

Shannon and Thorp also applied the same theory, later known as the Kelly criterion, to the stock market with even better results.

Edward Oakley Thorp (born in 1933) is a hedge fund manager, American math professor, author, and blackjack player.

He is best known for his 1962 book Beat the Dealer, which was the first book to prove mathematically that blackjack could be beaten by card counting.

He started his Las Vegas applied research using $10,000, with Manny Kimmell, a known mob associate, providing the venture capital.

The experimental results proved successful and his theory was verified since he won $11,000 in a single weekend, equivalent to $70,000 in today's dollars. Casinos now shuffle well before the end of the deck as a countermeasure.

He could have won more in his initial foray in Las Vegas save for the fact that his uncanny ability at winning drew the unwelcome attention of the casino security, mostly mob figures and that led to repeated expulsions from the various premises he visited that night.

News about the incident, even though it happened in Las Vegas, didn't stay there.Word of the feat spread among gambling circles, always eager for new methods of winning, and Thorp became an instant, if unlikely, celebrity among blackjack aficionados.

Due to the great demand generated about disseminating his research results to a wider gambling audience he wrote the book Beat the Dealer in 1962, widely considered the original card counting manual, and which sold over 700,000 copies, a huge number for a specialty title that put it in the New York Times bestseller list, much to the chagrin of Kimmel whose identity was thinly disguised in the book as Mr. X.

Since the late 1960s he has used his knowledge of probability and statistics in the stock market and by discovering and exploiting a number of pricing anomalies in the securities markets he has made a significant fortune.

He is now president of "Edward O. Thorp & Associates" in Newport Beach and manages a hedge fund.

Princeton-Newport was Thorp's first hedge fund and it achieved an annualized net return of 15.1 percent over 19 years. In May 1998 Thorp reported that his personal investments yielded an annualized 20 percent rate of return averaged over 28.5 years.

The Kelly criterion, sometimes referred to as the Kelly formula, was described in A New Interpretation of Information Rate, by J. L. Kelly, Jr, Bell System Technical Journal, 35, (1956), 917 -926, as a formula used to maximize the long-term growth rate of repeated plays of a given gamble that has positive expected value.

The formula specifies the percentage of the current bankroll to be bet at each iteration of the game.

In addition to maximizing the growth rate in the long run, the formula has the added benefit of having zero risk of ruin; the formula will never allow a loss of 100% of the bankroll on any bet. An assumption of the formula is that currency and bets are infinitely divisible, though this is met for practical purposes if the bankroll is large enough.